Am wondering if this is a good idea, to borrow money from the bank even if you CAN afford to buy a house on your own. I dont understand why people would do this, is it because of the risk factor??
Not only with purchasing a house for themselves but with flipping houses too. I would think that if one actually had the funds to buy the house then do it instead of borrowing from the bank???? Is there an advantage? Why would they want to be bothered with having a mortgage payment????
2006-12-28 09:05:01 · 8 answers · asked by Anonymous in Business & Finance ➔ Renting & Real Estate
Its a pretty simple answer. Leverage. If I have $100000 and typical houses that I can flip go for $100000 I could buy 1 house using your all cash method.
But if I put 20%down and finance the rest I could potentially be flipping 5 houses with that same $100K. Sure there are some interests expenses, but not enough to offset the advantages of having my money work harder for me.
2006-12-28 09:12:52 · answer #1 · answered by Anonymous · 1⤊ 0⤋
Well for one you may not want to tie up all of your money in purchasing a house. By borrowing the money this allows you to get the house but at the same time keep money in your pocket. It is always a bad idea to dump all of you money into anything. Even a sure thing like a house which 95% of the time will appreciate. And I'm not sure where you live(I'm from Long Island in NY)but in my area the average house goes for $450,000. Not too many people have that kind of money in the bank
2006-12-28 17:08:41 · answer #2 · answered by reginadlgmirror 1 · 0⤊ 0⤋
There are a lot of benefits :
First ,the tax benefits .
Secondly , the greater the duration of the loan the better is the time-money benefit factor for the guy who is taking the loan .
Thirdly,the risks of the home are in the hands of the mortgage company and not on the person buying the home .
Write to nme at kishaloy_bhowmick@yahoo.com and will say all the intricacies of home buying and loan .
regards,
kish
480.751.4125
Loan Officer
2006-12-29 00:54:57 · answer #3 · answered by kishaloy_bhowmick 2 · 0⤊ 0⤋
If your a smart investor, your money should work for you. I can pay my house off right now but I choose to hold a mortgage because my money makes me way more that 6% a year which is the cost of my mortgage. You can leverage your money against more property or invest in stock ect.. You should get 8-12% return on your money if your a savvy investor.
2006-12-28 17:14:43 · answer #4 · answered by Rob B 1 · 0⤊ 0⤋
By financing a house through a mortgage company, you are laying all the risk on them rather than putting all of your own funds into the property. This also helps you establish solid credit that you may need in the future for many financial purposes.
2006-12-28 17:08:22 · answer #5 · answered by A T 2 · 0⤊ 0⤋
Depending on the country you live in and the tax system, there are tax breaks on debt you owe. If you own a lot of properties you get taxed more. You're worth the same, but you pay more taxes. Borrowing money even if you have it is a way around paying those extra taxes, because you don't actually own the property yet. Happy new year.
2006-12-28 17:15:03 · answer #6 · answered by Hans B 5 · 0⤊ 0⤋
If they can make more with the money, it is better in use it for another investment. Example is the mortgage is 7%, and you can loan the money out or invest in something that pay 12%, you come out ahead.
2006-12-28 17:38:40 · answer #7 · answered by D S 4 · 0⤊ 0⤋
Tax incentives for many people. The interest is tax deductible. And it leaves your own money free -- but, me, no, I don't get it either. I bought outright, myself.
2006-12-28 17:12:59 · answer #8 · answered by Yahzmin ♥♥ 4ever 7 · 1⤊ 0⤋